Letter to the Editor
We are writing in response to John Rao's "Debt Buyer's Rewriting of Rule 3001: Taking the 'Proof' Out of the Claims Process" (ABI Journal, July/August 2004). Mr. Rao's article begins as a response to Andrew S. Jurs's article in the June 2004 ABI Journal that explored the Rule's requirement for claim documentation. It soon departs from that purpose to take a swipe at debt buyers. Mr. Rao is correct that compliance of Rule 3001 has become a "hot" topic, but his belief that this is primarily due to the sale of charged-off debt is not supported by the facts or by the blanket objections that are being filed by debtors. In reality, blanket debtors' objections on this basis are not limited to the claims of debt purchasers, but include the claims of credit card issuers as well. More specifically, the objections are often made to every, or almost every, unsecured claim that is filed in a case.
Mr. Rao opposes the summaries that are commonly attached to unsecured credit card claims. True, many of these are only one page long and have varying degrees of information. However, although Mr. Rao implies that these summaries are innovations of debt buyers, in fact unsecured claims have been filed with such summaries without opposition for many years.
Perhaps the most important facts that were omitted from the article, and often from the objections, replies and briefs that are filed in such cases, are that these blanket objections are to debts that are typically scheduled by the debtors, are not contingent or disputed, and are often closely approximate or exactly match the amounts scheduled by the debtors. What Mr. Rao is advocating is that creditors be required to attach numerous items to their initial claims, including several pages of statements, account contracts and agreements. This is an unnecessary exercise for many reasons, including that this information was already sent to the debtor pre-petition and relates to a debt that the debtor has admitted to owing and does not dispute. On a practical note, some jurisdictions limit the number and size of attachments that may be filed with a claim, including, significantly, the Western District of Washington, where In re Henry was decided.
Mr. Rao also takes umbrage at any modification to the claim form. Such modifications, however, are permitted by Bankruptcy Rule 9009, which states that official forms should be used "with alterations as may be appropriate" and allows for "their contents rearranged to permit economies in their use." He complains that specifically stating on the form that the claim is for "credit card debt" instead of "money loaned," "services performed" or "goods sold" is a problem. He is not clear why, other than that it is a deviation from the form. One would think that checking "Other" and adding a specific type of debt on Official Form 10 provides more specific and useful information to the court, trustee and the debtor. At the same time, he protests that this additional information added to the proof of claim form is a problem, and he also asserts that not enough information is attached to claims. What is not stated is exactly what "abuse" he believes is occurring by the alteration of the form.
The last 25 years have seen incredible changes in the way debt is used, loans are obtained and records are kept. Debtors do not fill out long applications to obtain credit cards; the terms and conditions governing credit card use are mailed to customers and are updated in the same manner. Cardholders do not even have to sign their name to access the credit if, for example, they are purchasing on the Internet, at a gas pump or over the phone. There is even a growing trend toward "contactless payment" where the debtor only has to wave a "token" over a receiver.
The evolution to electronic formats is ubiquitous: Bankruptcy courts send notices via e-mail, and the Bankruptcy Noticing Center sends electronic files filled with just the data that can be inserted into the template of a form if needed. The debtor's schedules are filed with the court electronically in many jurisdictions. Now, as they have been for the last 10 years, claims are being sold in bulk by creditors to debt purchasers. Over the years, the bankruptcy system has evolved through custom and procedure to handle the claims process. A strict adherence to form over the substance of all the papers filed in a bankruptcy would bring about inefficiency for all parties involved in the practice and administration of consumer bankruptcies.
Alarmingly, some debtors' attorneys appear to have taken the approach that if they object, it will be too expensive to respond to the objection or the creditor will not be able respond with the documents in a timely fashion, thus removing the claim from the bankruptcy. No one is suggesting that there should be no objections to claims. Instead, there should always be a valid basis for an objection, such as a legitimate dispute as to the amount of the claim or as to the liability for the claim. Filing blanket objections to all unsecured claims or objecting to a claim on a valid debt in the hope that the creditors will not respond or be unable to provide documents, so that a debt a debtor freely admits he/she owes will go unpaid in the bankruptcy, are practices that should not be tolerated.
Contrary to Mr. Rao's claims, the bankruptcy claims process is not being "turned on its head to facilitate the business model of those who purchase bankrupt debt." Rather, claims are being filed much as they have been for the last decade. It is the recent wave of blanket objections to unsecured claims that is attempting to change the process to favor one party by presupposing that creditors will prefer to avoid the costs of defending meritless objections, thereby allowing debtors to avoid paying otherwise valid claims.
We have always found the ABI Journal and ABI conferences to be places for ideas to be presented and discussed, places where court opinions and industry trends are analyzed and critiqued. However, we believe the article goes beyond this. By its use of select facts and unsubstantiated assumptions, it suggests to the reader invalid inferences. While Mr. Rao begins with a proper response to June's On the Edge column, he quickly changes focus and uses his response as a platform to promote his view of the bankruptcy claims process and his support of the recent In re Henry decision. The issues touched on by the Henry case are being litigated across the country with widely varying outcomes that Mr. Rao does not mention. It does not appear that Mr. Rao's article seeks to add relevant commentary to the debate, but only to add inflammatory rhetoric that previously had no place in ABI publications.
Thomas A. Lee III, Partner
Alane A. Becket, Partner
Becket & Lee LLP; Malvern, Pa.